3

SUSTAINABILITY ACCOUNTING IN

LOCAL GOVERNMENT: COMPARISONS

BETWEEN JAPAN AND AUSTRALIA

Professor Roger L. Burritt

Centre for Accounting Governance and

Sustainability, School of Commerce,

University of South Australia, Australia.

Prabanga Thoradeniya

Department of Accounting and Finance,

Monash University, Australia.

Associate Professor Akira Omori

Faculty of Business Administration,

Yokohama National University, Japan, and

Professor Chika Saka

School of Business Administration, Kwansei

Gakuin University, Japan.

ABSTRACT

Sustainability accounting in local

government is under-researched and in an

embryonic state of development. An

examination of recent developments in two

countries, Japan and Australia, in the context

of new public management reveals several

differences. First, Japan adopts a narrower

version of sustainability accounting and

reporting commensurate with a focus on

environmental matters as influenced by

national policies. Second, wider measures of

eco-efficiency benefits are reported in Japan

and are integrated with notions of

effectiveness, unlike the situation in

Australia. Finally, accrual accounting is not

in use in Japan thereby making it harder to

integrate mainstream and sustainability

accounting than is the case in Australia

1. INTRODUCTION

To date, attention has largely being directed

at approaches to sustainability accounting in

the private corporate sector where the

emphasis is upon the business case for

corporate sustainability (Salzmann et al.,

2005) and building information about social

and environmental impacts into everyday

decision making activities (Schaltegger &

Wagner, 2006). Although the question has

already been raised as to whether the planet

is safe in the hands of private companies

(Gray & Bebbington, 2001) less attention has

been directed at the role of public sector

entities (Ball, 2005; Farnetti and Guthrie

2009).

Public sector entities as well as private sector

entities consume the limited environmental

and social resources in their everyday

operations and, from the sustainability point

of view, also need to pursue efficiency in

their activities. In addition, public sector

entities have responsibility for maintaining

sound environmental /sustainability

conditions in their jurisdictions. Therefore, in

order for local government to be held to

account by residents, demands are growing

for the introduction of sustainability

accounting. In practice, in some local

governments sustainability accounting

information is already being disclosed and so

local government is considered here as being

representative of public sector entities.

The purpose of this paper is to identify

characteristics of sustainability accounting in

Japanese and Australian local governments,

and to clarify the differences between

Japanese and Australian cases. In addition,

the reason why those differences have

emerged is examined.

Local governments in Japan and Australia

are selected for study because (1) both

countries have developed sustainability

accounting and reporting practices, but (2)

the government accounting system and new

public management (NPM) based method of

management implemented differs between

the two countries.

4

To undertake the comparison between

practices in two different countries, the paper

is structured as follows. First, in Section 2,

two characteristics of sustainability

management and accounting in local

government are identified: “controllable

activity management” and “administrative

activity management”. In Section 3, relevant

aspects of NPM are provided as background

information about sustainability accounting

in local governments in the two countries.

Third, in Sections 4 and 5, sustainability

accounting practices in Japan and Australia

are examined in the context of NPM and the

respective characteristics of local

government. In the final section, differences

between sustainability accounting in local

government in Japan and Australia are

clarified, and some remaining issues that

need to be solved in future research are

presented.

2. PUBLIC SECTOR SUSTAINABILITY

MANAGEMENT AND ACCOUNTING

CHARACTERISTICS

In general, public sector entities supply

public administrative services for residents at

no charge or at a price which does not reflect

the full economic cost, whereas private

sector entities provide goods or services with

a view to profit. The ratio of expenditure by

the general government sector to Gross

Domestic Product is about 18%1 both in

Japan and Australia, and the public sector

plays an important part in their national

economies. Hence, we can identify the

activities of public sector entities as having

considerable impact on the national

economy, environment and society (GRI,

2004, pp. 2-3; CIPFA, 2004, p.9).

Public sector entities not only need to

implement environmental protection

activities to improve their environmental

performance, but they also need to act as

leaders of sustainability management and

accounting (GRI 2005, p.8). Considerable

influence of public sector entity activities has

raised the issue of the need to be accountable

1 Data extracted by “OECD.Stat.”(OECD, 2009).

and to disclose sustainability-related

information to residents. Information needed

relates to the environmental burden imposed

and any improvement from local government

activities in accordance with delegated

responsibility to manage activities impinging

on environmental and social impacts. From

this point of view sustainability management

is a “controllable activity management”

(Kawano, 2001, pp. 119-122). Hence,

sustainability accounting in local government

can be called “Accounting for Controllable

Activity” (hereafter ACA).

ACA has a similar accounting structure to

that of private corporate sustainability

accounting. Therefore, ACA for local

government can act as an exemplar of

practice (Bennett, 2008, p. 445; CIPFA,

2004, p. 9).

Public sector entities with a sustainability

strategy to manage environmental conditions

in their jurisdictions need to clarify whether

conditions are getting better or worse.

Sustainability management from this point of

view can be called “administrative activity

management” (Kawano, 2001, pp. 119-122).

Sustainability accounting in public sector

entities also plays a role in preparing

sustainability-related information relating to

administrative activities and in the

communication of that information to

residents. Sustainability accounting in this

sense can be termed “Accounting for

Administrative Activities” (hereafter AAA).

The AAA aspect of sustainability accounting

is a distinguishing characteristic of public

sector entities. Sustainability accounting by

private sector entities does not have this

characteristic.

3. NPM TRENDS IN THE PUBLIC

SECTOR

Recently, public sector entities have been

introducing sustainability accounting both in

Japan (Kawano, 2001) and Australia (Farneti

and Guthrie, 2009). Diffusion of NPM in

public sector entities is one of the main

backgrounds to this trend. As NPM provides

context through which to examine the trend

5

in sustainability accounting in the public

sector, an understanding of NPM is needed.

NPM refers to “a shorthand name for the set

of broadly similar administrative doctrines

which dominated the bureaucratic reform

agenda in many of the OECD group of

counties from the late 1970s.” (Hood, 1991,

pp. 3-4). NPM can be characterized as

“lessening or removing differences between

the public and the private sector” and as

“shifting the emphasis from process

accountability towards a greater element of

accountability in terms of results.” (Hood,

1995, p. 94).

Hood (1991, pp. 95-97; 1995, pp. 4-5) points

to the following doctrines employed by

NPM:

(1) “A shift towards greater disaggregation

of public organizations into separately

managed „corporatized‟ units for each

public sector „product‟”;

(2) “A shift towards greater competition

both between public sector

organizations and between public sector

organizations and the private sector”;

(3) “A move towards greater use … of

management practices which are

broadly drawn from the private

corporate sector …”;

(4) “A move towards greater stress on

discipline and parsimony in resource

use and on active search for finding

alternative, less costly ways to deliver

public services …”;

(5) “A move towards more „hands-on

management‟…”;

(6) “A move towards more explicit and

measurable … standards of

performance for public sector

organizations … ”; and

(7) “Attempts to control public sector

organizations in a more „homeostatic‟

style according to present output

measures ….”

These doctrines of NPM can be realized by

transplanting business management methods

from private sector to public sector entities.

In order to achieve this outcome public

sector entities need to develop a business

management cycle, such as continuous

improvement through plan-do-check-act, and

then the entities can move toward

“management by objectives” or

“management by results” (Hayashi, 2001, p.

2; Cavallusso and Ittner, 2004, pp. 244-245).

The “result” from implementation of these

doctrines can be captured by using the

input/output model illustrated in Figure 1.

According to Figure 1, first, public sector

entities have to set “objectives”, in order to

achieve particular social and economic

“needs” of residents. Second, resources are

needed as “inputs” to “activities” which help

achieve the “objectives”. The “activities”

lead to “outputs” for the entities. Interactions

between “outputs” and the social

environment produce medium term “results”,

and long term “impacts” on society. Finally,

the value of “activities” and “outputs” of

public sector entities relies on “outcomes”

that consist of “results” and “impacts”

(Pollitt and Bouckaert, 2000, p. 12).

According to “management by results”

thinking, economy and efficiency can be

measured through the comparison of inputs

and outputs, and effectiveness can be

captured by comparing objectives and

outcomes (e.g. OECD, 1997, pp. 26-27;

Hayashi, 2001, p.3). The system of

performance evaluation is a one of the NPM

methods employed by a number of public

sector entities both in Japan and Australia

(Christensen and Yoshimi, 2001). The aims

of this system are to measure economy,

efficiency and effectiveness of policies,

programmes and projects executed by public

sector entities, and to utilize the results of the

evaluations for administrative planning.

Further, in order to measure and

communicate efficiency of administrative

activities, it is expected that governmental

accounting systems should play a significant

role in policy management (Lapsley, 1999, p.

6

204; Guthrie, et al., 1999, p. 210; Pina and

Torres, 2003, pp. 334-335; Yamamoto, 2001,

p. 251). In line with global NPM trends,

governmental accounting reform has been

promoted both in Australia and Japan. One

additional consideration relates to the

introduction of accrual accounting. The

accrual based accounting system has been

fully introduced into the Australian public

sector, whereas NPM has been introduced

into Japanese public sector entities without

modifying the conventional cash based

accounting system (Guthrie, et al., 1999;

Yamamoto, 2001; Pina and Torres, 2003).

Since the cash based accounting system has a

legislative background in Japan, two separate

methods of accounting are now in existence.

4. SUSTAINABILITY ACCOUNTING IN

JAPANESE LOCAL GOVERNMENT

4.1. Background to Sustainability

Accounting in Japanese Local

Government

In this section two important considerations

are introduced relating to environmental

policies and environmental management

systems.

Environmental Policies and Sustainability

Accounting Japanese central and local governments have

been set institutional and legislative

structures for environmental conservation

since the 1992 Rio Earth Summit. At the

centre, the Basic Environment Law of 1993

represents the government‟s fundamental

environmental concepts, policies and

programs. In order to implement ambiguous

concepts prescribed in law, the government

was required to establish the Basic

Environment Plan which prescribes specific

medium-term programs.

Enactment of the Law and the Plan of central

government has diffused the setting of

environmental ordinance and the basic

environment plan by local governments. This

plan provides the basic guideline for

environmental administration, clarifies

fundamental principles of environmental

programs, and integrates each individual

environmental plan (Tanaka, 2008). The plan

has a Plan-Do-See characteristic as in the

following steps (Kitamura, 2003):

(1) Measurement of the state of the

Organization or programme

Objectives Inputs Activities Outputs

Finaloutcomes(‘impacts’)

Intermediateoutcomes(‘results’)

Socio-economic

problemsNeeds

Relevance

Utility and Sustainability

Effectiveness

Efficiency

Figure 1: The input/output model for NPM (Source: Pollitt and

Bouckaert, 2000, p. 13)

7

environment of the jurisdiction;

(2) Set medium-term targets and programs;

and

(3) Execute, manage and provide feedback

about the plan.

A number of local governments have been

introducing systems for progress

management or management by objectives.

The law recommends that progress/objective

management processes contain evaluation of

progress toward initial established targets

with the results of the evaluation being

disclosed in an environmental report or white

paper. Finally, the information is to be used

in revision of the plan.

Officers and managers of local authorities

already realize the importance of the plan

and its management. Hence, in practice,

utilization of sustainability accounting

information to progress/objective

management is one of the principal reasons

for introducing sustainability accounting in

Japanese local governments (City of Kobe,

2008; Kyoto City, 2009). This trend is

characteristic of sustainability accounting in

Japanese local governments.

Diffusion of Environmental Management

Systems in Local Governments

Another trend in environmental

administration in Japanese local government

is diffusion of environmental management

systems (hereafter EMS), such as ISO 14001.

Many researchers have identified positive

drivers for the introduction of EMS in local

governments (e.g. Lewis, 2000; Burström,

2000; Norén and Malmborg, 2004; Zutshi

and Sohal, 2004). Most large and medium

sized local governments in Japan have

already established EMS in their offices.

With regard to NPM in local governments,

the benefits from implementing EMS are:

cost savings through reduction of input and

output of resources; facilitation of

communication between staff; and increasing

efficiency and effectiveness of existing

systems through improvement of daily

operations (Zutshi and Sohal, 2004, pp. 350-

352). In short, pursuing efficiency and

effectiveness of activities through NPM has

been driving the introduction of EMS in local

governments.

The EMS under ISO 14001 consists of a

plan-do-check-act management cycle, and as

a result, EMS intends indirectly to achieve

continuous improvement of environmental

performance. However, environmental

policies, targets, and progress/objectives

management are voluntarily established by

each entity. Hence, EMS only presents a

conceptual framework for consideration

(Gray and Bebbington, 2001, p. 45;

Schaltegger and Burritt, 2000, p. 378).

Further, the EMS itself does not directly

contribute to improving environmental

quality in the jurisdiction - the highest

priority in local administration (Lewis, 2000,

p. 315; Burström, 2000, p. 282). Even if

better public environmental administration

can be promoted by using physical

information produced by the EMS, it is

necessary for a link to be drawn between

planned and actual physical information, in

order to make EMS more effective. This is

one of the reasons why several Japanese

local governments have been introducing

sustainability accounting.

4.2. Objectives of Sustainability

Accounting in Japanese local government

At the prefecture and city local government

levels, sustainability accounting tries to

adopt the idea of the importance of input,

output and outcome data as the basis for

measuring efficiency and effectiveness of

environmental activities. Objectives of these

activities are to manage effectively the

implementation of the basic environment

plan for local government environmental

policies and verify progress of the EMS.

Therefore, local governments wish to

introduce a management tool for the plan,

which, with the assistance of the EMS, has

become the highest priority for

environmental administration.

As stated in section 2, government activities

possess dual characteristics – control and

administration (Kawano, 2001, pp. 119-122;

8

CPA Australia, 2004, p. 12). The objective of

control is to manage the office of the local

government, while that of administration is

to manage the effects of environmental

policies on areas under their jurisdiction

(Kawano, 2001, pp. 119-121). These two

objectives of local government sustainability

accounting are summarized in Figure 2.

Tool

ACA: Accounting for AAA: Accounting for

Controllable Activities Administrative Activities

Efficiency (internal)

Efficiency (external) Efficiency (external)

Effectiveness

Efficiency (internal) = Internal Benefits／Costs

Efficiency (external) = External Benefits／Costs

Effectiveness = Outcomes／Objectives

Figure 2: Objectives of Sustainability

Accounting in Japanese Local

Government

ACA aims to measure inputs (costs) of

environmental conservation activities and

outputs (benefits) from those activities;

therefore, measurement of the outcome on

society is of secondary importance. These

environmental conservation activities refer to

“the prevention, reduction, and/or avoidance

of environmental impact, removal of such

impact, restoration following the occurrence

of a disaster, and other activities” (MOE,

2005, p. 3). Sustainability accounting

pursues the efficiency of these environmental

conservation activities.

AAA aims to measure inputs (costs), outputs

(benefits) and outcomes (results) of

environmental programs and projects

executed by the local government in

monetary terms, as far as possible. As stated

above, effectiveness is measured by

comparing objectives with outcomes. Since

the environmental programs and projects are

implemented in order to achieve the

objectives described in the basic environment

plan, AAA pursues the effectiveness of

environmental administration.

4.3. Sustainability Accounting Example in

Japanese Local Government

Yokosuka city has the longest experience of

integrated sustainability accounting,

commencing disclose of information since

fiscal year 1998 (Yokosuka City, 2004).

Yokosuka City‟s sustainability accounting

framework is represented in Figure 3.

According to Figure 3, Yokosuka City

identifies both ACA and AAA information;

hence this type is referred to as “integrated”.

Accounting for Controllable Activities (ACA)

Physical Terms

Environmental

Conservation

Activities Expenses

Internal

Benefits

External

Benefits Benefits (KPI)

XXX XXX XXX XXX XXX

Accounting for Administrative Activities (AAA)

Environmental

Programs and

Projects

External

Benefits

(KPI) Outcomes (KPI)

XXX XXX XXX

Monetary Terms

Expenses

XXX

Monetary Terms Physical Terms

X

XX = accounting provided by Yokosuka

City, Japan

Figure 3: Yokosuka City’s framework for

sustainability accounting (Source:

Yokosuka City, 2004).

Sustainability Accounting for Controllable

Activities

The upper half of Figure 3 represents the

framework for ACA based sustainability

accounting in Yokosuka City. Since the

information disclosed consists of expenses

(inputs) and benefits (outputs) from

environmental conservation activities,

information produced is similar to that of

private sector entities. Expenses and benefits

are classified by each environmental

conservation activity; therefore, the ACA

Objectives of Sustainability Accounting in Local

Governments

Organizational

efficiency

Environmental

improvement in

administrative district

EMS PDCA of Basic

Environmental Plan

9

type of information mostly complies with the

Environmental Accounting Guidelines of the

Japanese Ministry of the Environment

(MOE, 2005).

Expenses are classified by each

environmental conservation activity, such as

“Pollution Prevention”, “Global

Environment Conservation”, “Resource

Circulation and Waste Disposal”, etc.. Also,

these expenses are measured by the actual

(cash-based) expenditures for environmental

conservation activities.

Benefits are classified into three categories,

internal, external and key performance

indicators (KPIs). Benefits are measured in

monetary terms except for KPIs which are

measured in physical terms. Internal benefits

to the local government itself refer to

realized revenue and the benefits from

resources savings, whereas external benefits

refer to the effect which residents and/or

society enjoys through environmental

conservation activities undertaken by

government activities. The actual amount of

external benefits is not as large as the

internal benefits.

In summary, it can be said that ACA places

emphasis on the efficiency of environmental

conservation activities; hence, this method of

sustainability accounting has been influenced

by NPM trends that pursue efficiency in

government activities. ACA information

prepared is used to reconsider the “See” step

in EMS; however, it cannot reveal the state

of the environment of the jurisdiction in

detail. Further, if pursuit of efficiency of

organizational activities places greater

importance on accounting systems, the risk is

that administrative officers will tend to focus

on easy-to-manage activities as efficiency

orientated NPM is introduced (Burritt and

Welch, 1997, pp. 16-17).

Finally, consideration is given to another

aspect of sustainability accounting, AAA.

Sustainability Accounting for Administrative

Activities

The lower half of Figure 3 represents the

framework for AAA based sustainability

accounting in Yokosuka City. This type of

accounting is unique to public sector entities.

Expenses and benefits are presented

symmetrically in a similar way to ACA;

however, expenses and benefits are measured

in accordance with environmental programs

and/or projects that are included in the basic

environment plan.

Expenses are extracted from existing general

accounts based on cash-based measures of

accounting, and represent the amounts

expended on environmental administration.

However, in contrast with ACA information,

benefits are measured and disclosed only in

physical units or indices in monetary terms.

Measured benefits or indices are classified

into three; “environmental administrative

activity indices”, “environmental pressure

indices” and “environmental state indices”

(hereafter EAI, EPI, ESI). All of these

indices are categorized as external benefits.

EAI refers to the output of environmental

administrative projects; e.g. the number of

EMS constructed in the jurisdiction and “the

volume of collected recyclable wastes in the

jurisdiction”, etc.. Strictly speaking, EPIs do

not express benefits, but they represent the

volume of environmental burdens which

residents and firms within the jurisdiction

discharged during the accounting period.

Therefore, EPI is another aspect of output

from the government‟s administrative

activities. ESI belongs to outcome or result

indices. Examples of ESI are concentrations

of SO2, benzene, and PM10, BOD, COD,

etc.....Yokosuka City‟s example shows the

amount of administrative effort by

comparing the initial target with the indices.

These characteristics of AAA indicate the

pursuit of effectiveness of environmental

administrative activities and, hence, are

different from the efficiency focus of the

ACA method. In summary, using the AAA

method the government intends the results of

the administration to be presented through

management by results/objectives.

The ACA part of sustainability accounting in

Yokosuka City has now shifted to their

policy evaluation systems, and they do not

10

disclose such information as “accounting”

(Yokosuka City, 2009, p. 150).

An Analysis of Yokosuka City’s

Sustainability Accounting Information

An inter-annual analysis of Yokosuka city‟s

sustainability accounting monetary data is

shown in Tables 1-a and 1-b.

Table 1-a: Expenses and Benefits of

Controllable Activities in Yokosuka city

Table 1-b: Efficiency of Controllable

Activities in Yokosuka city

According to Table 1-a, the amount of

environmental conservation expenses

increases rapidly in the 2001 and 2002 fiscal

years. The main reason for this is increased

expense for dioxins treatment at waste

incinerating facilities.

Table 1-b shows that the cost-benefit

analysis during 10 fiscal years changes

between 0.4 and 0.7. The reason for low

efficiency of 0.2 to 0.4 in 2001 and 2002

fiscal years is that the benefit from dioxins

treatment could not be converted into a

monetary amount because of technical

difficulties (a statistical aberration caused by

measurement problems). Yokosuka City

[2004, p. 12] recognizes that the efficiency of

their controllable activities is achieved

through comparing costs with benefits

expressed in monetary and non-monetary

terms. Needless to say, the controllable and

administrative activities should be evaluated

by using both the economic benefits

presented in Table 1, and also the benefits

expressed in physical terms.

4.4. BSC-type Sustainability Accounting in

Japanese local government

Iwate Prefecture (Iwate) provides a second

example of a local government which has

integrated the two types of sustainability

accounting. Iwate uses a different approach

and recognizes different performance areas,

as reflected through a balanced scorecard

(BSC). Inputs are expressed in terms of the

monetary representation of these activities;

outputs are designed around organizational

learning and internal processes that can help

reduce environmental impacts; while

outcomes are couched in terms of the

customer (or user) perspective.

Balanced Scorecard Perspectives

Environmental

activities Financial

Learning and

growth

Internal

Processes

User

(Stakeholder)

Targets Input Output Output Outcome

XXX XXX XXX XXX XXX

XXX = accounting provided by Iwate

prefecture, Japan

Figure 4: Iwate’s framework for

sustainability accounting (Source: Iwate,

2004).

The partial framework for sustainability

accounting in Iwate prefecture is shown in

Figure 4 and it reflects:

the inclusion of information on

environmental and economic impacts of

the public sector organization‟s

activities;

information about economy, efficiency,

and effectiveness of activities;

a ready means for integrating

information, for example, to assess eco-

efficiency or eco-effectiveness; and

11

the provision of information in monetary

and non monetary terms related to

financial, learning and growth, internal

processes and user dimensions of

performance.

Iwate data provides an integrated

sustainability accounting system with input-

related cost information and output-outcome

information expressed in physical and

monetary units. The information is related to

two sets of environmental activities –

environmental administration policies and

internal environmental measures.

Input information used for evaluating the

economy of administrative services can be

obtained from the „investment amount‟ and

„expense amount‟. Performance information

on the output - outcome relationship, used

for evaluating efficiency and effectiveness,

can be obtained from the „future (learning

and growth) perspective‟, „internal process

perspective‟ and „user perspective‟ columns.

Iwate introduced sustainability accounting in

the context of assessing the results of

conjoint analysis applied to value different

environmental conservation options desired

by residents as well as promotion of the

notion of „Public Private Partnerships‟.

Information from conjoint analysis affects

policy choices and the results of prefecture

decisions are reflected in the sustainability

accounting information. The accounting

system supports decision making at the local

prefecture level in a pragmatic way.

The Iwate example illustrates the perceived

importance of a pragmatic, user based

approach to development of sustainability

accounting as a tool that contributes

information in relation to policy decisions,

planning and control in the prefecture.

However, to date, Iwate‟s sustainability

accounting and budgeting systems have not

been integrated, thus reducing the usefulness

of sustainability accounting data for planning

and control. Sustainability accounting at

Iwate could be seen as providing transparent

information to stakeholders about the results

of government policies, however, movement

towards sustainability accounting in local

government would depend on recognition

that social goals should also be considered

and accounted for.

5. SUSTAINABILITY ACCOUNTING IN

AUSTRALIAN LOCAL GOVERNMENT

Australia has three levels of government: the

Australian Government (also called federal

and Commonwealth), State and Territory,

and local.

5.1. Sustainability Accounting and

Reporting in the Australian Government

In 1992, in line with Agenda 21, introduced

by the Earth Summit, the importance of

social reporting and management for public

sector entities was highlighted with the

release of „Social Responsibilities of

Commonwealth Statutory Authorities and

Government Business Enterprises‟ by the

Australian Government‟s Joint Committee of

Public Accounts (Commonwealth of

Australia, 1992). This report recognizes

existing reports on social performance of

Commonwealth entities and highlights

inadequacies, especially in relation to issues

of social justice for citizens and „clients‟,

responsibilities to employees, and towards

the community. Since 1992, the pursuit of

ecologically sustainable development has

been increasingly incorporated into the

policies and programs of Australian

governments as a significant policy

objective, for example, through the

Commonwealth Environmental Protection

and Biodiversity Conservation Act 1999 (the

Act) which came into force in 2000. Under

Section 516A of the Act Commonwealth

Departments, Parliamentary Departments,

Commonwealth Authorities, Commonwealth

Companies and other Commonwealth

Agencies were required to include in their

annual reports information about their

performance in relation to ecologically

sustainable development (ESD). These

developments led to increased demand for

sustainability accounting to support reporting

at the Commonwealth level.

12

The ecological perspective rests with another

department. In June 2003, Environment

Australia (now DEWHA, The Department of

Environment, Water, Heritage and the Arts)

released Triple Bottom Line Reporting in

Australia: A Guide to Reporting Against

Environmental Indicators, a companion to A

Framework for Environmental Reporting: An

Australian Approach, previously launched in

March 2000 (Department of Environment

and Heritage, 2004).

Australia published three Australian State of

the Environment Reports in 1996, 2001 and

2006 which show the nation‟s environmental

state at a given time (Lenzen, Dey & Murray,

2004; DEHWA, 2008). With the aim of

evaluating the long-term sustainability of

Commonwealth Government policies, the

Treasurer publishes an Intergenerational

Report (IGR) every five years (Coombs &

Dollery, 2002).

Links between this push for TBL reporting

and the development of sustainability

accounting for public sector organisations at

the Commonwealth level in Australia have

not yet been clearly established.

Sustainability accounting is in its infancy,

but the basic foundations are in place for

development.

State and Territory governments are clearly

engaging in environmental reporting and

considering TBL reporting, however links to

sustainability accounting appear somewhat

tenuous.

5.2. Sustainability Accounting in

Australian Local Government

Some local authorities in Australia have

incorporated the triple bottom line into their

annual reporting processes, the City of

Melbourne being the first to do so (GRI

Resource Document, 2004, p.14). Other

examples include Lake Macquarie City

Council, Onkaparinga City Council, and

Manningham City Council.

The City of Melbourne formally adopted the

Melbourne Principles for Sustainable Cities

on 2 May, 2002 (City of Melbourne, 2002;

2004) (see Table 2) and Eco city campaign,

to act now on the future challenges of

changing climate (City of Melbourne,

2008a). These principles have the potential

to guide the decision-making process by

refining strategic planning and local

governance.

Melbourne Principles for Sustainable

Cities

1. Long-term

planning for

intergenerational

social, economic and

political equity

6. Society and

culture

2. Long-term

economic and social

security

7. Participatory

communities

3. Biodiversity,

natural ecosystems

and their restoration

8. Social networks

4. Minimising

ecological footprint

9. Sustainable

production and

consumption

5. The form and

function of

ecosystems

10. Continuous

improvement,

accountability and

good governance

Table 2: Melbourne Principles for

Sustainable Cities (Source:

www.epa.vic.gov.au/Business_Sustainability

/sustainable_cities.asp )

The following chart shows the amount the

City of Melbourne spent (expenditure) and

the amount it earned (revenue) in delivering

its services and programs within the strategic

objective of being an environmentally

responsible city.

13

Chart 1: Expenditure and Revenue

(Source: The City of Melbourne, 2008b,

Annual Report 2007/08:

http://www.melbourne.vic.gov.au/annualrepo

rt/performance_environment.shtml).

The City of Melbourne continues to take

steps to improve its capacity to monitor its

environmental footprint. It has identified

greenhouse gas emissions, water and waste

as being the most relevant environmental

sustainability issues (City of Melbourne,

2008b).

Second, performance measurement. In 2002,

the City of Melbourne published 'Zero Net

Emissions by 2020 – A roadmap to a climate

neutral city' which positioned Council as a

world leader by setting an ambitious target of

zero net emissions by 2020.The following

table shows the implementation status of the

Zero Net Emissions by 2020 – and strategy

update which was adopted by the Melbourne

City Council in September 2008.

a) Leading edge design

Create a showcase out of the

City of Melbourne‟s

administration building

current

Procedures by 2005.

Achieved

Facilitate tenants/developers

into consortia to invest in

landmark green building

developments.

Partially

achieved

Commit to best practice for

the Commonwealth Games

Village.

Achieved

5 Star energy regulation for

residential housing by 2003.

Achieved

New energy regulations for

commercial property by 2004.

Achieved

Encourage the Property

Council of Australia (PCA) to

revise its rating code to

include energy efficiency.

Achieved

Accelerate approvals for green

buildings and environmentally

sustainable development

(ESD) features.

Partially

achieved

Introduce mandatory energy

modelling for

buildings greater than 5,000

sq m.

Achieved

Introduce a procurement

scheme for green offices.

Not

achieved

Establish a green building

„learning hub‟

as part of a Global Centre of

Greenhouse

Expertise and Technology.

Not

achieved

Fund design charettes for new

buildings.

Achieved

Develop an energy assurance

scheme for

buildings greater than 5,000

sq m.

Achieved

b) Greening the supply

Progressively increase the

City of Melbourne‟s use of

renewable energy.

Partially

achieved

Pass on innovative energy-

efficient

technologies to the City of

Melbourne‟s

Partially

achieved

14

Sustainable Investment Fund

Independent

Board of Trustees.

Participate in a fuel cell

demonstration project.

Not

achieved

Establish a green supply chain

by 2004, using the Green Tick

and Greenhouse Challenge

standards.

Not

achieved

Participation in a Green Power

buying consortium to access

green power at the lowest

possible price.

Achieved

Better coordination of

expertise.

Not

achieved

Promote Melbourne‟s

expertise and technologies

abroad and assist local firms

to attract international

investment in sustainable

energy technologies.

Not

achieved

Support the Victorian

Government in encouraging

the use of embedded energy,

solar hot water and co-

generation.

Not

achieved

Support energy retailers and

contractors to

move to value-added services:

examine solar hot water

financing as a first step

Not

achieved

c) Sequestration

Establish a city-rural

partnering arrangement to

invest in a carbon sink.

Not

achieved

Invest in blue-Mallee eucalypt

plantations as feedstock for

renewable power generation,

with eucalyptus oil as a by-

product.

Not

achieved

Establish an investment

vehicle for City of

Not

achieved

Melbourne businesses and

residents for commercial

offsetting projects.

Link this investment vehicle

and a carbon credit purchasing

scheme for tenants as part of

the pilot municipal emission

trading market.

Not

achieved

Table 3: The 'Zero Net Emissions by 2020

– Actions Implementation and Strategy

Update 2008'

(Source: City of Melbourne (2008c),

http://www.melbourne.vic.gov.au/rsrc/PDFs/

EnvironmentalSustainabiity/Zero_Net_Emiss

ions_2020.pdf)

Of interest is the observation that, according

to the City of Melbourne, triple bottom line

reporting led to changes in departmental

processes, particularly in the way data was

collected and performance analysed (GRI

Resource Document, 2004, p. 27).

Some inferences for sustainability

accounting can be found in their Triple

Bottom Line (TBL) toolkit which represents

a set of checklists, guidelines, templates and

case studies for the application of TBL

decision-making and reporting2.

First, capital works. The toolkit includes a

capital works sustainability statement

designed to be applied to the capital works

bidding/ budget approval process and to

provide additional criteria against which

capital work submissions are to be evaluated.

The City uses two criteria for capital works

(i) do they meet the strategic directions of the

City, and (ii) how urgent are the works.

Projects of critical importance lead to a pre-

commitment. The toolkit suggests that

sustainability rating is a third criterion that

would be used to rank any capital works

submissions that are not deemed critical or

pre-committed. In practice, sustainability

ratings were not needed as:

2 City of Melbourne

http://www.melbourne.vic.gov.au/info.cfm?top=166&pg=1197 accessed 21.10.08

15

The capital works budget for 2002/03 was

absorbed almost entirely by a number of

pre-committed and critical projects. This

meant that no additional projects were

approved and the Sustainability Statement

ranking system was effectively made

redundant, a situation likely to recur over

the next few years.3

In effect, decisions were not influenced by

the notion of sustainability adopted.

However, an integrated approach would

recognise the importance of sustainability

issues in the first two criteria used to assess

capital works.

The Global Reporting Initiative (GRI) and

the National Greenhouse and Energy

Reporting Act 2007 (Cwth), as well as the

International Council for Local

Environmental Initiatives‟ (ICLEI) Cities for

Climate Protection program, have helped to

guide environmental sustainability

performance reports of the City of

Melbourne.

The 2006-07 Annual Report was runner-up

in the first Global Reporting Initiative (GRI)

Readers‟ Choice Awards for sustainability

reporting - the only Australian organization

to be recognized (City of Melbourne, 2008c).

The 2007-08 Annual Report contains a

stand-alone section on sustainability

performance which was prepared to meet the

requirements of GRI application level B

(City of Melbourne, 2008b).

6. CONCLUDING COMMENTS

Several observations can be made about the

contrasting cases of sustainability accounting

examined in Japan and Australia.

First, is the difference in scope between

sustainability information used by the local

governments. Sustainability accounting in

the Japanese local governments examined

concentrate on environmental sustainability,

whereas the scope of sustainability

3 City of Melbourne at

http://www.melbourne.vic.gov.au/rsrc/PDFs/TBL/CAPWORKSSUSTAINTXT.DOC accessed 17.5.05

accounting in Australian local governments

is broader. The Australian case contains

sustainability information relating to the

economy, environment, social and cultural

issues. In comparison with the Japanese

cases, information disclosed in the Australian

example is in line with international trends

towards sustainability reporting represented

by GRI. Nevertheless, Japanese local

governments disclose more substantial

environmental information than in the

Australian case.

It can be inferred that the issue of scope is

influenced by national policies of each

country. The Australian Government has

already enacted a sustainability strategy

which includes social and environmental

aspects, whereas the Japanese Government‟s

sustainability strategy only concentrates on

environmental sustainability as supported by

the Act and the Plan.

Second, local governments from both

countries have tried to measure efficiency of

sustainability activities using costs and

benefits. When comparing Table 1 with

Chart 1, the Japanese examples consider both

internal and external monetary benefits,

whereas the Australian example only

considers realized revenue as representing

benefits. In the examples cited sustainability

accounting by Japanese local governments

places stress on efficiency by measuring

benefits based on a wider scope of

environmental aspects than the Australian

case.

In relation to the effectiveness of

sustainability activities, Japanese examples

try to measure costs in monetary terms and

benefits in physical units for each

activity/program over time by using the AAA

model, whereas in the Australian case

effectiveness is measured using comparisons

between ex ante targets and ex post

environmental footprints. Therefore, it can be

inferred that the Japanese model tends to

express efficiency and effectiveness within a

single framework; however, the Australian

example uses variances to show effectiveness

while playing down efficiency.

16

Third, the linkage between mainstream

accounting (accrual accounting or cash based

accounting) and sustainability accounting

differs between the two countries. As

Australia has already converted to accrual

based accounting, it is easier and useful to

link mainstream accounting and

sustainability accounting. On the other hand,

there is no link between mainstream

accounting and sustainability accounting in

Japan.

NPM provides the background to

introduction of sustainability accounting in

local governments. Implementation of NPM

can lead to the achievement of improvement

in efficiency in the governments‟ activities;

therefore, NPM can contribute to the

improvement of governmental fiscal

conditions through reorganizing inefficient

programs and projects. Since outcomes or

effectiveness are still difficult to measure, it

can be inferred that public administrators

tend to pursue efficiency rather than

effectiveness. If so, no matter how a

program or a project contributes to improved

sustainability effectiveness, a problem is that

public administrators may neglect those

kinds of programs or projects. Hence,

sustainability accounting in the public sector

would not fully comply with the economic

and efficiency based concept of NPM.

Sustainability accounting is still in its

infancy in both of the countries and local

governments surveyed; therefore, in order to

construct sustainability accounting in public

sector entities, further theoretical, empirical

and case studies need to be promoted.

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